If your company or organisation qualifies for Marginal Relief, then you start by calculating Corporation Tax due at the main rate, as normal. You then work out how much relief you are entitled to, and subtract this relief from the Corporation Tax due, to arrive at the amount you need to pay.
Accounting periods that span two financial years
If your company or organisation's accounting period spans two financial years and the tax rates have changed during that time, you will have to carry out two calculations, apportioning the profits according to how many days of your accounting period fall in each financial year. You'll also need to apportion the lower and upper limits that apply to your company for Marginal Relief in the same way, and use the appropriate Corporation Tax main rate percentage and standard fraction for each financial year, if they have changed.
Ring fence activities
If your company has profits from ring fence activities (companies engaging in some UK Continental Shelf oil-related activities), any relief that may be claimable on the Corporation Tax due on those profits is calculated in the same way, but the Corporation Tax main rate and the Marginal Relief fraction - known as the ring fence fraction - may be different. You also won't be able to use the HMRC Marginal Rate Relief calculator and will need to calculate any relief manually.
Calculating Marginal Relief step by step
The following calculation steps are for a company with no associated companies, and a 12 month accounting period falling wholly within one financial year. But remember, you may be able to use the HMRC calculator to do this for you.
Please note: all the box numbers mentioned below refer to boxes on form CT600
First, check that the profits are above the lower limit for Marginal Relief (currently £300,000) but equal to or below the upper limit (currently £1.5 million).
Put an X in Box 42 to indicate that you're claiming Marginal Relief.
Prepare the following figures:
- N - 'taxable total profits' (the figure from Box 37)
- A - 'augmented profits' (taxable total profits from Box 37, plus any Franked Investment Income from Box 38)
Calculate the Corporation Tax due at the main rate on the taxable total profits. This goes into Box 63.
Calculate the profits X on which relief is allowable using the following formula:
X = (U − A) × N ÷ A
Where U is the upper limit (in this case £1.5 million)
Calculate the amount of relief allowable on the profits X, by multiplying X by the standard fraction. Put the amount of relief in Box 64.
Reduce the figure for Corporation Tax due by subtracting the relief allowable from it. Put this figure in both Box 65 and Box 70.
Write down and document your calculation because you'll need to send it in with your Company Tax Return to claim Marginal Relief. See the page in this guide on how to claim Marginal Relief.
Where there are associated companies, please follow the same steps (above) but at Step 3 remember to reduce the upper limit (U) by dividing it by the number of companies which are associated - for example, if your company has one associated company, divide U by two.